The CEO of Jersey Finance takes to these pages to explain the intersection of wealth management and socially-responsible investment approaches.

A noticeable trend in recent years has been that of investing in order to achieve social and other non-financial goals as well as earn returns. Approaches vary: some forms of investment model screen out areas considered undesirable while others seek out companies for their positive qualities. 

Debate continues over whether socially responsible investment can achieve returns that match, or surpass, those of more traditional approaches. In this article, Geoff Cook, the chief executive of Jersey Finance, examines the topic of social responsibility in wealth management. The editors are pleased to share these insights and invite readers to respond.

Changes in wealth patterns around the world are resulting in significant and complex shifts in the international private client and wealth management landscape and the emergence of some interesting concepts for private wealth professionals. 

In particular, in a world of heightened scrutiny, there is a growing need for those advising high net worth individuals and their families to take the concept of socially-responsible wealth management and philanthropy seriously. 

According to the 2015 World Wealth Report (RBCWM/Cap Gemini), 92 per cent of high net worth individuals globally say they now feel that social impact is important, underlining the extent to which private clients, family offices and their advisors are increasingly focusing on socially responsible wealth management.

It is a trend that is being largely driven by a greater appreciation amongst high net worth individuals of critical global issues; of the opportunity there is now to access charitable and philanthropic agencies and engage positively through philanthropy and good deeds; and of their own responsibility as custodians of global wealth. 

So significant is this trend, it is anticipated that social responsibility within wealth management will eventually become embedded as a core component of private wealth strategies. As a jurisdiction that provides innovative cross-border financial services to the wealth management industry, Jersey is certainly seeing this theme, which will also be taking centre stage at Jersey Finance’s Annual London Private Wealth Conference this year.

Evolution
The practice of philanthropy around the world has undergone a real change in the last decade and there is expected to be ongoing evolution in the sector as socially-responsible wealth management continues to drive innovation across the industry, both onshore and in leading international finance centres. For instance, robust structures through specialist centres like Jersey are helping to securely facilitate efficient flows of capital often to areas of the world that are inherently politically, socially or economically unstable but where philanthropic activity is needed most. These are helping to turn into reality the desires which many high net worth individuals have to make a difference.

It follows that the charitable and philanthropic sectors are becoming more sophisticated. Increasingly, bespoke solutions are required to meet the often very specific objectives of individuals and families, ranging from charitable enterprises involved in a particular cause right through to unique multi-jurisdictional solutions.

The strategies behind socially-responsible wealth management plans are evolving too. Tax relief, for instance, is no longer a reason for donors to participate in socially responsible wealth management, as was acknowledged in the UK Government’s “Giving” white paper (2012). Instead, long-term sustainable investment and estate and succession planning are now at the centre of socially responsible wealth management strategies.

Repercussions
Sophistication in this area has repercussions for the private client advisor community and for IFCs too. 

The 2015 World Wealth Report revealed that HNWIs have real concerns about having access to top level advice surrounding where and how to be philanthropic and how best to ensure their social impact strategies will be successful.

The debate has moved on, for instance, to ask fundamental questions of the advisory community about what social responsibility actually means, and how advisors are qualified to help decide what is responsible, and what is not, when constructing holistic wealth management strategies. At the same time, however, the report also revealed that families, friends and wealth managers were the equal top sources of advice for HNWIs when it came to social impact investing, indicating a real opportunity for those advisors able to demonstrate excellence in this area.

The increasingly global nature of socially-responsible wealth management plays to the strengths of IFCs. For its part, Jersey is well placed to take up the initiative in this area and has become an ideal centre through which to establish internationally-dynamic philanthropic structures, thanks to the same principles that have helped it earn a strong reputation in facilitating global capital flows: security, expertise, tax neutrality and experience.

Practitioners in Jersey are reporting that the jurisdiction’s trust, foundation and company structures are being more and more frequently employed as part of socially responsible wealth management strategies, thanks to the attention that the Jersey authorities have given to evolving the range of trust and foundation structures specifically for philanthropic and charitable purposes.

Throughout its 50-year history Jersey’s finance industry has sought to evolve. As part of its ongoing commitment to innovation across the private wealth spectrum, Jersey recently introduced the Charities (Jersey) Law, which created a robust and modern legal framework to support all types of international philanthropic and charitable enterprises, whilst there are now approaching 300 Jersey foundations, a significant number used as part of philanthropic structures.

The emergence of socially responsible wealth management is an exciting phenomenon that has the opportunity to make positive differences to communities around the world, but it brings with it real challenges. Advisors will need to be able to demonstrate specific technical expertise whilst jurisdictions will need to constantly ensure they provide appropriate platforms and regulatory frameworks as sophistication in this area builds.

These themes are set to form part of the debate at this year’s Jersey Finance Annual London Private Wealth Conference, on 27 April at 8 Northumberland Avenue. More details at www.jerseyfinance.je